Why Should the Postal Service Deter Amazon's Competitive Entry into Last-Mile Parcel Delivery?

J. Gregory Sidak
2017 Social Science Research Network  
t h e J o u r n a l o n I n n o v a t I o n C r i t e r i o n Report, the Office of Inspector General (OIG) of the U.S. Postal Service identified the strategic opportunity for large retailers to deploy their own last-mile delivery networks as a threat to the traditional competitors in parcel delivery (namely, the Postal Service, FedEx, and UPS). 1 To understand better how such entry through vertical integration by large retailers could affect competition in parcel delivery, the OIG asked a
more » ... -renowned expert on postal economics, Professor John Panzar, to create a theoretical model of the modern parcel-delivery market. Panzar's 60-page white paper, appended to the RARC Report, presents in detail a mathematical model of Amazon's optimal dispatch strategy for last-mile parcel delivery as a function of different rates charged for such delivery by the Postal Service, FedEx, and UPS. 2 Panzar says that his model "reveals conditions under which the rates offered by the [Postal Service, FedEx, and UPS] are low enough to deter [Amazon] from operating its own delivery vans." 3 As if promoting the creeping expropriation of a private industry, Panzar's analysis recommends that a state-owned enterprise cut its prices so far as to deter competitive entry by a more efficient and highly innovative private
doi:10.2139/ssrn.3179147 fatcat:ql27jn5eijf5bkibxk5c7emhf4